'Tis the season for charitable giving and for tallying up the tax break that comes with it. With that in mind, you might be wondering how much money or property the average person of your income level gives each year. Here's a breakdown of Americans' charitable giving, and why this information is important to know.
Average charitable donations by income
The short answer is that the average itemized tax return includes $4,790 in charitable deductions, but that doesn't tell the entire story.
First, not everyone who donates to charity can use the charitable deduction. To get the tax break, you need to itemize deductions on your tax return. If you take the standard deduction, you cannot deduct your charitable contributions. Since about three-fourths of tax returns take the standard deduction, it's fair to say that there are a lot of donations that go unclaimed for tax purposes. So keep in mind that the overall average quoted here only refers to taxpayers who itemize.
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Second, among taxpayers who itemize, charitable deductions vary widely based on income. For example, the average itemizing taxpayer with adjusted gross income (AGI) of $80,000 claims a charitable deduction of $3,040, while someone with an AGI of $800,000 could be expected to claim $22,400 of contributions.
Here's a breakdown of the average charitable deduction by income level, according to the IRS's 2014 Statistics of Income (SOI), the latest tax year for which full, finalized data is available.
|
Adjusted Gross Income (AGI) |
Average charitable deduction |
% of AGI |
|---|---|---|
|
Under $25,000 |
$1,874 |
12.3% |
|
$25,000-$50,000 |
$2,594 |
6.8% |
|
$50,000-$75,000 |
$2,970 |
4.8% |
|
$75,000-$100,000 |
$3,356 |
3.8% |
|
$100,000-$200,000 |
$4,130 |
3% |
|
$200,000-$500,000 |
$7,424 |
2.6% |
|
$500,000-$1,000,000 |
$18,615 |
2.8% |
|
$1,000,000-$2,000,000 |
$43,944 |
3.2% |
|
$2,000,000 or more |
$382,953 |
5.6% |
Source: IRS Statistics of Income 2014.
Why are these averages important to you?
You may have heard that the chance of a tax audit is very small, and if so, you heard right. The overall audit rate is well under 1% of all tax returns.
However, while some audits are random, many are triggered by certain red flags, one of which is larger-than-average deductions. The IRS knows how much the average person with your income contributes to charity each year, and unusually large deductions can cause the IRS to take a closer look.
For example, they know the average taxpayer with an AGI of $120,000 who claims a charitable deduction can be expected to claim about $3,600. A deduction of $4,000 may not get a second look. However, someone with a $120,000 income with a $15,000 charitable deduction may catch the IRS's attention.
By all means, claim every penny to which you're legally entitled. Just know that, if your charitable deductions are unusual, there's more of a chance you'll be asked to back them up, so be extra careful with your documentation.
What you need to know if you're claiming a deduction
Speaking of documentation, the IRS has different rules for charitable contributions, depending on the type of donation and its value.
For cash contributions, the documentation rules are straightforward. If a cash donation was less than $250, a cancelled check or a receipt showing the amount and date is sufficient. For donations greater than $250, you'll need written confirmation from the organization. Most charities mail tax paperwork automatically, but not all do, so be sure to stay on top of it.
The rules for donated property are a little more complicated, and can be broken down into four categories:
- For donations worth less than $250, a simple dated receipt with a description of the donation is enough.
- If the value is between $250 and $500, you'll need written documentation from the organization.
- For donated property worth more than $500, you'll also need to document how you obtained the property in the first place.
- Finally, donations worth more than $5,000 require a professional appraisal.
When it comes to valuing donated property, be realistic. If you donate an old t-shirt and try to deduct $100, you're just asking for an audit. Organizations such as Goodwill and the Salvation Army publish valuation guidelines you can use, and for other situations, you can use used-item marketplaces, such as eBay, to get a realistic idea of what you could get for the items.
New items you purchased and immediately donated can be deducted for the actual amount you paid. For larger items, such as a car or boat, blue-book value is a good guideline, but as I mentioned, a professional appraisal is required if you intend to deduct more than $5,000.
It's better to over prepare
Whether your charitable deduction is above average, below average, or right around the average for your income level, it's a good idea to thoroughly document every penny you claim. As I mentioned, some audits are completely random, so it's better to over prepare when it comes to all forms of tax documentation, including charitable deductions.
